The General Office of the Ministry of Finance ("MOF") has recently issued the Provisions on Accounting Treatment of Rent Concessions Related to the Novel Coronavirus Pneumonia (COVID-19) Epidemic (Draft for Comment) (the "Draft for Comment") to solicit opinions from the entities concerned by June 4, 2020.
The Draft for Comment touches upon contents in four respects. The first is clearly defining the scope of application. Enterprises will be allowed to choose the application of the existing lease guidelines or the practical expedient stated in this Draft for Comment, and must apply consistently the method they select to all similar lease contracts. The second is clarifying the practical expedient respectively for accounting for COVID-19-related rent concessions by lessees and lessors that adopt new guidelines and those adopting the old ones, in response to the feedback from accounting practitioners. It is made clear that if the practical expedient is applied, there is no need to assess whether COVID-19-related rent concessions are lease modifications. The third is setting out the disclosure requirements for the application of the practical expedient. And the fourth is stipulating that the Draft for Comment shall retrospectively take effect from January 1, 2020. According to the Draft for Comment, questions open for comment are mainly about "whether the described scope of application is appropriate, whether there is any difficulty in the practical judgment, and if any, what is your suggestion on a more proper description", among others.